Government underestimated cost of new ships, budget watchdog says

OTTAWA — The Harper government’s vaunted national shipbuilding plan was under fire Thursday after Parliament’s budget watchdog found it could cost as much as $4.13 billion to replace the navy’s ancient resupply ships, and not $2.6 billion as originally budgeted.

The government says it will continue to refine its cost estimates as the new resupply vessels move from the drawing board to the Vancouver shipyard where they will be built.

But Parliamentary Budget Officer Kevin Page warned the military risks losing key resupply capabilities unless more money is added, prompting opposition parties to accuse the government of planning to buy “tugboats painted grey.”

The Harper government set aside $2.6 billion in 2010 to construct two new joint support ships, which are supposed to replace the navy’s 1960s-era Protecteur-class resupply ships.

The joint support ships are among the vessels to be built under the Harper government’s $35-billion shipbuilding strategy, which is supposed to revitalize the country’s navy and coast guard fleets over the next two decades while simultaneously turning the country into a world-class shipbuilder.

Yet in a report released Thursday, Page said the government will need to inject between $680 million and $1.53 billion more into the joint support ship project just to make sure the new vessels are able to do the same job as the old ones.

“It would be in the realm of the five per cent probability that they would get anything even near a replacement for the Protecteur for the $2.6 billion,” Page told reporters. “So we need to set aside more money.”

The first of the new joint support ships, which are being built in Vancouver, was supposed to have been delivered last year, but now won’t be in the water until at least 2018.

National Defence has called resupply ships “integral” to the navy’s ability to do its job.

Public Works Minister Rona Ambrose, who is overseeing the entire shipbuilding strategy, said the government has implemented “rigorous” oversight that will monitor and verify costs “for each step of every project as they move forward.”

“Let’s remember,” Ambrose added, “this is in the design phase, but we have all these measure in place to protect the taxpayer.”

The fact the joint support ship design has not been finalized is key as senior federal bureaucrats said earlier this week that they remain confident the government can still afford two vessels, while also admitting that there could be “trade-offs” as the new vessels are designed to stay within budget.

Page said if the government does not put more money into the project and instead scale back the new supply vessels, that should be cause for debate as the new resupply ships would almost certainly be less capable than the existing vessels.

“The question’s really going to be for parliamentarians: ‘Is that what we want?’” he said.

“What kind of requirements are we going to be left with these ships? How big will these ships be? How many people will be able to stand on these ships? What’s the refuelling capacity, sealift capacity, etc.?”

Page’s findings are an unwelcome development for the Harper government, which has been holding up the shipbuilding strategy as a success in the face of mounting problems with the F-35 stealth fighter, maritime helicopters, search and rescue aircraft and other military purchases.

But they also appear to confirm some of the concerns about the shipbuilding strategy that have been bubbling within industry and defence department circles.

Opposition parties accused the government of fiscal incompetence and selling Canada’s sailors short.

“They’re already scaling back on their promises about these ships and what they will be able to do,” NDP military procurement critic Matthew Kelway said in the House of Commons. “With their stated budget, are we going to be left with nothing but two tugboats painted grey?”

Interim Liberal leader Bob Rae demanded to know whether the government plans to buy fewer ships or increase the budget, but Ambrose reiterated that the government has oversight mechanisms in place.

“If any adjustments need to be made,” she said, “they will be made with the navy and the coast guard.”

The joint support ship project has been on the drawing board for more than a decade.

The Martin government launched a plan in 2004 to build three vessels that could serve as state-of-the-art, multi-purpose floating bases from which Canadian military operations could be launched and supported throughout the world.

But the Harper government pushed the reset button on that plan in 2008 after industry said it was impossible to build the vessels within the set $2.1-billion budget

It relaunched the project in 2010 with fewer requirements, a slightly increased budget of $2.6 billion and an intention to buy two vessels, with an option for a third.

Two companies, one Canadian and the other German, are in the process of finalizing separate designs, one of which will be chosen for Seaspan Marine in Vancouver to start building.

But Page’s report found the reset cost the project money because delays and rising costs through factors like inflation meant the purchasing power of that $2.6 billion was less than the original $2.1 billion.

Still, Page said he could not say exactly why his cost estimate was so much higher than National Defence’s because the department officials refused to explain to him how they came up with their numbers.

He also acknowledged he was forced to make a number of assumptions as he attempted to put a price on the new joint support ships.

But he said his numbers were accurate when tested against existing resupply vessels fielded by other countries’ navies, and verified by a variety of independent experts.

Page said the worst thing that can happen is if the joint support ship project is restarted again because not enough money has been set aside to meet the navy’s requirements.

National Defence reported late last year that biggest challenge facing the navy in 2012 was when its two support ships, the HMCS Protecteur and Preserver, went into maintenance at the same time.

The report said the repairs were essential to keep the 45-year-old vessels operational, but because of their absence in late 2011 and early 2012, the navy was forced to turn to allies for help replenishing other Canadian vessels at sea until the re-supply ships came back online.

The vessels were supposed to be entering retirement now, but will have to stay in the water until the new joint support ships are built.